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Gangland judicial opinion is a reminder of liability for franchisees and their franchisors

In Ford v. Palmden Restaurants, LLC, the Court of Appeals of California issued a strong reminder to both restaurant franchisees and their franchisors of their potential liability for criminal conduct that takes place on a restaurant’s premises. While the legal principles at issue differ for franchisees and franchisors, this potential liability is one that neither can ignore.

The case involved a Denny’s restaurant in Palm Springs, California, that was operated by Palmden Restaurants, LLC (“Palmden”). Starting during 2002 members of a gang known as the Gateway Posse Crips (“Gateway”) would “take over” the restaurant around 2 a.m. each Sunday, after closing of the club that they “hung out at” on Saturday night. “Taking over” meant:

Members of the Gateway group refused to wait in line; they would just seat themselves. They were loud; they would use "foul language." They would "table-hop." Only a few of them would order food, and the ones who did would leave without paying. Other customers responded by canceling their orders or asking for their food to go and then leaving. Some Gateway members would stay outside in the parking lot, drinking and smoking marijuana. They had had "many fights," both outside and inside the restaurant.

In March 2003, there was a significant brawl around 2 a.m. at the restaurant, instigated by members of Gateway. The fight involved injuries to “innocent” female patrons, overturned furniture and a broken window. Police officers recommended to the owner of Palmden that she take several security measures, including installing video cameras and hiring off-duty uniformed police officers. Palmden closed the restaurant for the early a.m. hours only during the first weekend after the brawl, and thereafter Gateway resumed its “take overs.” Palmden did not install security cameras, hire off-duty police officers or take other new substantive security measures.

In April 2004, Terrelle Ford, who was a loan officer, had the misfortune of being at the restaurant with friends on a Sunday at 2 a.m. when the Gateway members arrived. A large group of men began beating one man standing outside the restaurant, and some of Ford’s friends went outside to break up the fight. When Ford saw his cousin being attacked he came outside to protect him and was severely beaten by Gateway members, suffering permanent brain injury. Shortly thereafter Palmden began closing the restaurant on Sundays in the early a.m., and the Gateway gang found a new “after-hours hangout.”

The trial court had granted summary judgment in favor of Palmden, finding that it could not be liable for the harms caused by the criminal acts of the Gateway gang members. The appeals court disagreed and reversed, sending the case back for trial.

The court, following well-established precedent, held that all restaurants and other public establishments have an obligation to undertake reasonable steps to secure common areas against the foreseeable criminal acts of third parties that are likely to occur without such precautionary measures: “The more certain the likelihood of harm, the higher the burden a court will impose on a [proprietor] to prevent it; the less foreseeable the harm, the lower the burden a court will place on a [proprietor].”

The central question was the extent of Palmden’s duty to take action to prevent gang violence, and the essence of the decision was that Palmden was liable because it adopted no meaningful new security measures after the 2003 gang fight and before Ford’s severe beating. As the court said:

We emphasize that we are not saying that a business that is plagued by gang members necessarily has to shut down (even for a few hours). It would be perfectly reasonable for it to experiment first with lesser measures, such as surveillance cameras, security guards, or a protective order. [Palmden argues that] it is speculative [whether] these would have been successful. What we can say with certainty is that either these measures would have worked, or else closing down the restaurant would have worked.

Therefore, Palmden’s failure to act may have been a substantial cause of Ford’s injuries and Ford had a right to have a jury decide Palmden’s liability.

What About the Franchisor?

Ford advanced several arguments as to why DFO, LLC, the Denny’s franchisor; Denny’s, Inc., which leased the restaurant to Palmden; and the parent company of both of those entities, Denny’s Corporation, should be held jointly liable for his damages. The court found that summary judgment could be overturned on the grounds that Palmden was those entities’ “ostensible agent” in operating the restaurant. In plain English, Ford was not aware that the Denny’s restaurant was a franchise and his belief that it was a “corporate location” must be reasonable under the circumstances.

The court found the following facts important in making that conclusion:

While some Denny's restaurants are franchisee-operated, others are corporate-operated; hence, we cannot say it is common knowledge that all Denny's are necessarily franchises. There was no signage or other indication that the particular Denny's was actually operated by a franchisee. Finally, Ford testified that he had seen advertisements identifying Denny's as "a family style restaurant . . . in which a patron could enjoy a good meal in a friendly, safe, and secure environment" and that this led him to conclude that "[h]e and [his] friends could enjoy a meal at the subject Denny's . . . ."

The court also reversed summary judgment in favor of the landlord, Denny’s, Inc., the parent company Denny’s Corporation and other affiliates, on the basis that they might be “alter egos” of the franchisor DFO, LLC. The trial court had granted summary judgment for those entities without analysis and they had not provided the appeals court with support in favor of keeping them out of the case.

Takeaways

If you own a restaurant you have a duty to your patrons and employees to establish security that is reasonable under the circumstances. If the circumstances are as dire as described in this case, your best course of action is to close the restaurant during the dangerous hours, and if you need permission build the case for doing so in writing directed to your franchisor and/or landlord.

If you are a restaurant franchisor, at a minimum make sure that each restaurant has a conspicuous sign identifying who owns the restaurant, as an independent licensee of your company. If the restaurant is run by your affiliate company, then that affiliate should be identified just like a franchisee. Seek to include the words “independently owned” in any local advertising. For casual dining establishments, consider including a place in the menu template to identify the owner, perhaps underneath the logo.

Compare jurisdictions: Litigation: Enforcement of Foreign Judgments

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